Hatching the biggest retirement nest egg

With the U.S. Department of Labor participant-level fee disclosure regulation deadline finalized, participants who invest in employer-sponsored retirement plans (such as 401(k) plans) will be better equipped to make decisions related to fees – decisions that could affect the size of their retirement nest eggs.

Background

Much of the current buzz about disclosures focus on what are known as the DOL’s service provider fee disclosures. These are disclosures vendors and others (who contract to provide services to retirement plans for fees) must provide to the plan fiduciary.

On February 3, 2012, the DOL finalized the service provider fee disclosure regulations, and in so doing, also established the deadline by which plan administrators must comply with what are known as the DOL’s participant-level fee disclosure regulations.

The participant-level fee disclosure regulations were actually finalized on October 20, 2010, and on December 8, 2011, the DOL provided interim guidance regarding electronic delivery methods available for the disclosures. However, the effective date/compliance deadline of the regulations had been an ever-moving target.

As mentioned earlier, the participant-level fee disclosures will better equip participants to make decisions about their nest eggs.

How the Regulations Equip Participants to Hatch the Biggest Retirement Nest Egg

Phyllis Borzi, the Assistant Secretary of Labor for the Employee Benefits Security Administration, testified before the U.S. Senate’s Special Committee of Aging on March 7, 2012. In her testimony, Ms. Borzi noted that the DOL’s ongoing initiatives (such as the service provider fee disclosure regulations and the participant-level fee disclosure regulations) are “designed to improve the transparency and adequacy of retirement savings plans, in particular focusing on 401(k) plans where a number of investment and other risks have been shifted onto the shoulders of workers,” with the DOL’s goal being “to make sure that employers and workers have good retirement savings options and the information to make the best choices about retirement savings.”

A result of the participant-level fee disclosures is that participants will be aware of expenses and fees for each investment option (i.e. investment fund into which a participant may invest her account(s)), including any front- or back-end loads or sales charges, redemption fees, and investment management fees. Participants will also be aware of expenses for any loans, distributions, or other expenses assessed on a specific participant-initiated transaction.

For each investment option, participants will be able to see, in a comparative chart or similar format, the performance data, benchmarks, investment strategies, and risks, among other information.

Knowing the expenses/fees and information for each investment option will enable participants to better invest their accounts. Knowing expenses for certain transactions (e.g. a loan transaction) will better enable a participant to decide whether or not it is “worth it” to request a loan, for example – or even if worth it, making a participant aware how the loan fees might crack her retirement nest egg.

Effective Date/Compliance Deadline

For “calendar year” plans (plans with a plan year beginning each January 1st and ending each December 31st), the initial required annual participant-level fee disclosures must be furnished no later than August 30, 2012, and the first quarterly statement with disclosures must be furnished no later than November 14, 2012. Yes, more than one disclosure is involved. See the Detailed Information section, below.

“Off-calendar year plans” that begin February through July (2012) have the same effective dates as “calendar year” plans. For “off-calendar year plans” that begin August through December (2012), the initial required annual fee disclosures must be made no later than 60 days following the first day of the plan year, and the first quarterly statement with disclosures must be made no later than 45 days after the end of the first calendar quarter in which the new rules became applicable.

What Needs to be Done?

The plan administrator must provide initial, and thereafter annual, disclosures of plan-related and investment-related information to participants. Changes to the initial/annual disclosure information must also be provided.

Some of the plan-related information includes quarterly disclosures of administrative expense information and individual expense information, when such have been actually deducted from participants’ accounts.

The disclosures must meet content and some format requirements. Some of the disclosures may be included as part of, or with, the participants’ benefit statement. In addition, the plan administrator may provide the disclosures electronically, but be certain to read the proverbial fine print, because there are rules to follow.

Detailed Information

If you desire more detailed information about the participant-level fee disclosures and/or the interim guidance on electronic delivery of the disclosures, please access links to summaries by the Transamerica Center for Retirement Studies, a not-for-profit foundation. In the meanwhile, let’s try not to “crack” our retirement nest eggs; rather, let’s accumulate the biggest nest eggs possible to hatch!